Beijing Wandong Medical TechnologyLtd's (SHSE:600055) Returns On Capital Not Reflecting Well On The Business

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Beijing Wandong Medical TechnologyLtd (SHSE:600055), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Beijing Wandong Medical TechnologyLtd, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.016 = CN¥80m ÷ (CN¥5.3b - CN¥383m) (Based on the trailing twelve months to March 2024).

Therefore, Beijing Wandong Medical TechnologyLtd has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 6.3%.

See our latest analysis for Beijing Wandong Medical TechnologyLtd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Beijing Wandong Medical TechnologyLtd.

So How Is Beijing Wandong Medical TechnologyLtd's ROCE Trending?

On the surface, the trend of ROCE at Beijing Wandong Medical TechnologyLtd doesn't inspire confidence. Around five years ago the returns on capital were 6.5%, but since then they've fallen to 1.6%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Beijing Wandong Medical TechnologyLtd is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 17% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

Like most companies, Beijing Wandong Medical TechnologyLtd does come with some risks, and we've found 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com